Giant health systems making moves that are unusual for corporate consolidation.
Two recent healthcare mega-mergers have embraced an unusual power-sharing arrangement: the 50-50 split.
The Advocate-Aurora and Dignity-CHI mergers, both announced this week, mark two of the largest healthcare consolidations of the year. What differentiates these proposals from other mega-mergers is the intention to combine without exchanging any funds, while avoiding layoffs and maintaining their respective CEOs.
Each deal has been called a “merger of equals,” incorporating a move not typically seen in the world of corporate consolidation. Traditionally, companies exchange money during the sale or make drastic adjustments to their corporate administrative structure post-merger.
In the cases of Advocate-Aurora and Dignity-CHI, these companies are already approaching future operations with different plans in mind.
Bringing money (or lack thereof) to the table
Advocate actively pursued mergers throughout the year. Its plan to join with NorthShore University HealthSystem was rejected by federal authorities in the spring due in large part to the geographic proximity of the two entities. The failure cost Advocate $15 million, the Chicago Tribune reported.
A few months later, Advocate announced revenue shortfalls and ordered $200 million in cuts. Despite tough circumstances, Advocate’s financial stability remains strong according to Moody’s. Aurora, meanwhile, remains the most-profitable health system in Wisconsin with a net income of $404 million last year.
The same cannot be said for CHI, which enters its merger as the lesser of two equals.
CHI has spent more than a year negotiating its merger with Dignity, all while suffering significant financial setbacks. In March, CHI’s credit rating was lowered by Moody’s from A3 to Baa1. The health system also tendered the resignation of the CEO of St. Luke’s Health and 1,500 layoffs, most of which occurred at St. Luke’s, the Houston Chronicle reported.
Even for skeptics of 50-50 mergers, the Advocate-Aurora deal makes sense for its stated objectives. Advocate is the largest health system in Illinois while Aurora remains one of the most profitable systems in the Midwest.
The combined system will be the 10th largest in the U.S., have a total operating revenue of about $11 billion, and employ 70,000 people across hundreds of facilities, including 27 hospitals.
Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.